{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/can-a-term-life-insurance-policy-be-used-for-the-collateral-assignment-requirement-on-an-s","api_url":"https://dealroom.so/api/public/questions/can-a-term-life-insurance-policy-be-used-for-the-collateral-assignment-requirement-on-an-s","question":"Can a term life insurance policy be used for the collateral assignment requirement on an SBA 7(a) loan?","topic":"Life insurance","audience":"lender","bot_mode":"lender","short_answer":"Yes, a term life insurance policy can be used for collateral assignment on an SBA 7(a) loan, provided its term extends for at least the full term of the loan or a substantial portion of it, and it has sufficient coverage.","rule":"The SBA allows for term life insurance for collateral assignment as long as the policy's duration provides adequate coverage for the period of risk. Lenders prefer policies that match or exceed the loan term to ensure continuous coverage for the key person. The policy must be irrevocably assigned to the lender.","example":"A borrower takes a 10-year, $750,000 7(a) loan. They have a 15-year term life insurance policy with a $1,000,000 death benefit. This policy would be acceptable for collateral assignment as its term and coverage are adequate. The lender would secure the collateral assignment.","what_lenders_check":"Lenders must verify the term life policy's coverage amount and duration. Ensuring the policy remains in force and the assignment is properly recorded is crucial. Short-term policies that expire well before the loan term may necessitate renewal requirements or a different policy.","required_facts":["Term life insurance","Collateral assignment","Policy term","Coverage amount","Irrevocable assignment"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"When can a lender require a collateral assignment of life insurance for a 7(a) loan on a non-owner key employee?","url":"https://dealroom.so/for-lenders/questions/when-can-a-lender-require-a-collateral-assignment-of-life-insurance-for-a-7-a-loan-on-a-no"},{"question":"What documentation is required for a lender to properly assign a life insurance policy as collateral for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-documentation-is-required-for-a-lender-to-properly-assign-a-life-insurance-policy-as-"},{"question":"What specific details must a lender verify when structuring life insurance collateral assignments for multiple key principals with varying ownership stakes?","url":"https://dealroom.so/for-lenders/questions/what-specific-details-must-a-lender-verify-when-structuring-life-insurance-collateral-assi"},{"question":"When is a collateral assignment of life insurance on a key principal mandatory for an SBA 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/when-is-a-collateral-assignment-of-life-insurance-on-a-key-principal-mandatory-for-an-sba-"},{"question":"Under what circumstances can a lender waive the life insurance requirement for a 7(a) loan on a key principal?","url":"https://dealroom.so/for-lenders/questions/under-what-circumstances-can-a-lender-waive-the-life-insurance-requirement-for-a-7-a-loan-"},{"question":"What are the specific requirements for life insurance collateral assignment when multiple key principals exist?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-life-insurance-collateral-assignment-when-multiple-"}],"related_terms":[{"term":"Life Insurance Collateral Assignment","url":"https://dealroom.so/glossary/life-insurance-collateral-assignment"},{"term":"Decreasing term life insurance policy","url":"https://dealroom.so/glossary/decreasing-term-life-insurance-policy"},{"term":"Life insurance requirement","url":"https://dealroom.so/glossary/life-insurance-requirement"},{"term":"Life insurance assignment","url":"https://dealroom.so/glossary/life-insurance-assignment"},{"term":"Term life insurance","url":"https://dealroom.so/glossary/term-life-insurance"},{"term":"Collateral Assignment of Life Insurance","url":"https://dealroom.so/glossary/collateral-assignment-of-life-insurance"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/can-a-term-life-insurance-policy-be-used-for-the-collateral-assignment-requirement-on-an-s","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}